Description of scenarios

Treasury modelled a range of scenarios and the results presented are from the core policy scenario which assumes medium global action and an initial price of A$20/t CO2-e in the macroeconomic modelling, and A$23/t CO2-e for household impacts.

Medium global action

The medium global action scenario assumes the world takes action to stabilise the greenhouse gas concentration level at 550 parts per million (ppm) of carbon dioxide equivalent (CO2-e) by 2100. This target is consistent with the low end 2020 emission reduction pledges made in Copenhagen in 2009 and Cancun in 2010. Action for developing countries is staggered through time, with developed countries and China leading the mitigation effort initially; most countries act by 2020; and everyone acts by 2031. Initially, global action is uncoordinated, with differentiated carbon prices and limited permit trade. Over time, countries move to more open trade, either bilaterally or through a common market, with a global carbon price emerging in 2015-16.

Core policy scenario

The scenarios modelled do not reflect all elements of the Government's final carbon pricing mechanism. The core policy scenario assumes a carbon price of A$20/t CO2-e from 1 July 2012, rising at a rate of 5 per cent each year, plus inflation in the macroeconomic modelling. The impact on households has been modelled assuming an initial carbon price of A$23/t CO2-e in 2012-13. This modest difference in initial carbon price does not materially impact on the analysis. The fixed price moves to a flexible world price in 2015-16, which the Treasury projects would be around A$29/t CO2-e.

Australia's national emission reduction targets of at least 5 per cent below 2000 levels by 2020 and 80 per cent below 2000 levels by 2050 have been modelled. As part of its plan to secure a clean energy future, the Australian Government has adopted a strong long-term target for cutting pollution. The Government's 2050 target represents a fair contribution by Australia to the global goal of holding temperature increases to less than 2 degrees Celsius.

Australian emission reduction target

At least 5 per cent below 2000 levels by 2020 and 80 per cent below 2000 levels by 2050.

Emission-intensive trade-exposed industries

Assistance starts at 94.5 per cent or 66 per cent, depending on intensity, and declines at an annual rate of 1.3 per cent per year.

Fuel tax

An effective carbon price is applied to: transport and non-transport emissions from businesses using liquid fuels from 2012-13 (except light vehicles, agriculture, forestry and fishing) and to heavy on-road vehicles from 2014-15, through the fuel tax credit system; and aviation fuel from 2012-13 through the domestic aviation excise system. Off‑road transport use and non-transport use of gaseous fuels face an effective carbon price through reductions in fuel tax credits or automatic excise remission. On-road transport use of gaseous fuels does not face a fuel tax credit reduction due to imposing the Road User Charge.

Household assistance

Remaining revenue from the scheme is allocated to households as lump sum payments.

International linking

No international linking during the fixed carbon price period and only quality restrictions from 2015-16.